Anhui Anli Material Technology Co., Ltd. (SZSE:300218) shareholders would be excited to see that the share price has had a great month, posting a 39% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 54% in the last year.

Although its price has surged higher, there still wouldn't be many who think Anhui Anli Material Technology's price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S in China's Luxury industry is similar at about 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Anhui Anli Material Technology's P/S Mean For Shareholders?

Recent times have been advantageous for Anhui Anli Material Technology as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Is There Some Revenue Growth Forecasted For Anhui Anli Material Technology?

The only time you'd be comfortable seeing a P/S like Anhui Anli Material Technology's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. Revenue has also lifted 16% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 26% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 14%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Anhui Anli Material Technology's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Anhui Anli Material Technology appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite enticing revenue growth figures that outpace the industry, Anhui Anli Material Technology's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Anhui Anli Material Technology that you should be aware of.

If you're unsure about the strength of Anhui Anli Material Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.